INDUSTRY COMMISSION MINING AND MINERALS PROCESSING IN AUSTRALIA VOLUME 2: COMMENTARY, STATISTICS AND ANALYSIS Report No. 7 25 February 1991 Australian Government Publishing Service Canberra © Commonwealth of Australia 1991 ISBN 0 644 13939 0 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the Australian Government Publishing Services. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, AGPS Press, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601. Printed in Australia by P. J. GRILLS, Commonwealth Government Printer, Canberra CONTENTS Appendixes B Views of participants 3 C Economic importance of resource-based industries 97 C1 Mineral production 99 The State dimension 99 C2 Mineral processing and treatment 99 C3 Overseas trade 108 Exports and imports 109 Pattern of mineral trade 115 C4 Employment 115 Industrial disputes 115 C5 Investment 123 C6 Prices 123 D Mineral exploration 131 D1 What is exploration? 131 D2 Changing nature and importance of exploration 132 D3 Who undertakes exploration in Australia? 133 D4 Current trends in exploration in Australia 134 D5 Factors influencing exploration 138 Physical considerations 138 Social factors 139 Market factors 139 E The economics of individual mining operations 149 E1 Setting up a basis for comparison 151 E2 Sensitivity of project viability to changes in the exchange rate, interest rates and perceptions of sovereign risk 154 Effects of a devaluation 154 Effects of an increase in the cost of capital 154 Effects of a perception of increased sovereign risk 154 E3 Sensitivity of project viability to changes in royalty arrangements 155 Effects of imposing an ad valorem royalty 155 Effects of imposing a specific royalty 157 Effects of imposing a pure rent royalty 157 E4 Sensitivity of project viability to changes in transport and handling charges 158 Effects of reduced rail freights 158 Effects of reduced coastal shipping costs 158 Effects of reduced bulk handling costs 160 E5 Sensitivity of project viability to changes in labour costs and productivity 160 Effects of higher wage costs 162 CONTENTS III Effects of increased productivity 162 Effects of more flexible labour arrangements 162 E6 Sensitivity of project viability to delays 163 E7 Conclusions 164 F The costs of impediments to mining and minerals processing 193 F1 The ORANI-MINE model 193 F2 Infrastructure inefficiencies 195 Transport reform 195 Improved efficiency in electricity supply 199 F3 Removal of assistance 201 Removal of manufacturing industry assistance 201 Reduced rural assistance 203 F4 Conclusions 205 G Brief history of government involvement in mining 211 Early developments - coal 211 The colonies gain control over minerals 212 Gold fever transforms society and the economy 212 A miner's right to enter Crown land and stake his claim is established 212 Miner's rights extended to private land 213 Coal increases in importance 213 Metalliferous mining becomes established 213 World War I takes its toll 213 Mining falls victim to protectionist sentiment in the 1920s 213 Special assistance for the gold industry in hard times 214 World War II also extracts its price 214 Aluminium emerges as a strategic metal 214 Post-war diversification 214 Coal's troubled times lead to establishment of the Joint Coal Board 214 The hunt is on to discover uranium 215 Moves to larger-scale operations 215 Gold is singled out for further special assistance 215 Embargo lifted on iron ore exports 215 Aboriginal land rights are recognised by the Commonwealth Government 216 The environment takes centre stage as a popular issue 216 Restrictions are placed on uranium 216 Introduction of the Fringe Benefits Tax affects many mining ventures 217 The mining industry is effectively denied access to more land 217 Establishment of the Resource Assessment Commission 217 Sustainable development engages everyone's attention 218 H Assistance to mining and minerals processing industries 223 H1 Measurement of assistance 223 H2 Minerals processing 224 Assistance estimates 225 H3 Mining 229 Outline of estimation methodology 229 IV MINING & MINERALS PROCESSING IN AUSTRALIA Levels of border assistance 230 Other measures 233 H4 Referencing assistance to value added 234 H5 Comparisons of assistance 236 Attachments D1 Nature of exploration 141 Time, money and risk 141 The exploration process 141 Concepts phase 142 Reconnaissance phase 143 Surface exploration phase 143 Subsurface exploration 144 Deposit delineation and evaluation phase 144 E1 Model specification 165 E2 Results and assumptions/data and parameter settings for `base case' simulation 180 Tables C1 Quantity of selected minerals produced, 1987-88 and 1988-89 100 C2 Contents of selected metallic minerals produced, 1987-88 and 1988-89 101 C3 Value of selected minerals produced, 1987-88 and 1988-89 102 C4 World production, Australia's share of world production and world's leading producers of selected minerals, 1988 104 C5 Value of minerals, coal and construction materials produced, by State/ Territory, 1987-88 105 C6 Production of principal manufactured products of mineral origin, 1988-89 and 1989-90 106 C7 Extent of processing of resource-based exports, 1973-74 to 1986-87 107 C8 Estimated potential of gross value added by further processing 110 C9 Exports and imports by industry of origin, 1987-88 to 1989-90 111 C10 Exports of major resource-based commodities, 1989-90 113 C11 Principal metallic contents of selected ores and concentrates etc exported from Australia, 1989-90 114 C12 Employed persons by industry and average weekly hours worked, August 1989 116 C13 Full-time non-managerial employees: average earnings and hours paid for, by industry, November 1988 117 C14 Total labour costs and major components, by industry, 1987-88 119 C15 Industrial disputes: working days lost, by industry, 1984Ä88 122 C16 Private new capital expenditure by selected industries and type of asset, 1987-88 and 1988-89 124 D1 Minerals exploration expenditure by country, 1982-87 133 D2 Private mineral exploration (other than for petroleum): expenditure by State/Territory, 1984-89 137 D3 Private mineral exploration (other than for petroleum): expenditure by type of mineral, 1983-88 138 E1 Simulation results - sensitivity of project viability to changes in the exchange rate, CONTENTS V interest rates and perceptions of sovereign risk 152 E2 Simulation results - sensitivity of project viability to changes in royalty arrangements 156 E3 Simulation results - sensitivity of project viability to changes in transport and handling charges 159 E4 Simulation results - sensitivity of project viability to changes in labour costs and productivity 161 E5 Simulation results - sensitivity of project viability to delays 163 F1 Concordance between ORANI-MINE's mining and mineral processing industries and ASIC classes 194 F2 Estimated long-run effects of removal of transport impediments 197 F3 Estimated long-run output effects of removal of transport impediments on mining and mineral processing industries under reference 198 F4 Estimated long-run effects of improved efficiency in electricity supply 200 F5 Estimated long-run output effects of improved efficiency in electricity supply on mining and minerals processing industries under reference 201 F6 Estimated long-run effects of removal of manufacturing assistance 202 F7 Estimated long-run effects of removing manufacturing assistance on mining and minerals processing industries under reference 203 F8 Estimated long-run effects of a 25 per cent reduction in 1987 levels of agricultural assistance 205 H1 Average nominal rates on outputs for selected mineral processing activities, 1983-84 to 1989-90 and mid-1990s 226 H2 Average nominal rates on materials used for selected mineral processing activities, 1983-84 to 1989-90 and mid-1990s 227 H3 Average effective rates for selected mineral processing activities, 1983-84 to 1989-90 and mid-1990s 228 H4 Comparison of the importance of mining activities, 1980-81 and 1987-88 output levels 231 H5 Effects of border assistance by mining industry, 1988-89 232 H6 Average nominal rates of border assistance on inputs to mining, 1983-84, 1988-89 and mid-1990s 234 H7 Average effective rates of border assistance to mining, 1983-84, 1988-89 and mid-1990s 235 Figures C1 Value of minerals, coal and construction materials produced, by States/Territory, 1987-88 105 C2 Trends in the extent of processing of resource-based exports 107 C3 Exports and imports by industry of origin 112 C4 Average hourly earnings by full-time non-managerial employees, by industry, November 1988 116 C5 Total labour costs (including on costs), by industry, 1987-88 121 C6 Industrial disputes: working days lost per thousand employees, by industry 122 C7 Private new capital expenditure by industry, 1988-89 124 C8 Indexes of commodity prices - metals versus food and all commodities, 1980-90 125 C9 Mineral prices, June 1985-June 1990 126 VI MINING & MINERALS PROCESSING IN AUSTRALIA D1 Exploration expenditure, number of mines and ex-mine value of output, 1945-1989 135 D2 Gold price, gold exploration and gold production, 1970-1989 136 CONTENTS OF OTHER VOLUMES Apart from this volume (whose contents are detailed on previous pages), the Commission's report on Mining and Minerals Processing in Australia comprises an Overview and three other volumes as follows: Volume 1 : Report (includes Overview) Appendix A Terms of reference and conduct of the inquiry Volume 3 : Issues in detail Part I Access to land Part II Mining and environmental concerns Part III Government regulation Part IV Taxation and royalties Part V Construction and operating costs Part VI Other influences on competitiveness Part VII Special topics and case studies Volume 4 : Other supporting material The Overview which appears at the front of Volume 1 is also available as a separate document. CONTENTS VII APPENDIX B VIEWS OF PARTICIPANTS VIEWS OF 1 PARTICIPANTS 2 MINING & MINERALS PROCESSING IN AUSTRALIA B VIEWS OF PARTICIPANTS This Appendix contains summaries of all non-confidential submissions and parts of submissions received for this Inquiry.